Interim Report

Interim Report

Inquiry into the performance of the Australian Securities and Investments Commission

Interim report

1.1 On 20 June 2013, the Senate referred the performance of the Australian Securities and Investments Commission (ASIC) to the Economics References Committee for inquiry and report by 31 March 2014. The committee was to give particular reference to:

ASIC's enabling legislation, and whether there are any barriers preventing ASIC from fulfilling its legislative responsibilities and obligations;

the accountability framework to which ASIC is subject, and whether this needs to be strengthened;

the workings of ASIC's collaboration, and working relationships, with other regulators and law enforcement bodies;

ASIC's complaints management policies and practices;

the protections afforded by ASIC to corporate and private whistleblowers; and

any related matters.1

1.2 On 5 August 2013, the then Governor-General prorogued the 43rd Parliament and a general election was held on 7 September 2013. The 44th Parliament commenced on 12 November 2013. Two days later, the Senate agreed to the committee's recommendation that this inquiry into ASIC's performance be re-adopted with a reporting date of 30 May 2014. To date, the committee has received 468 submissions and 96 supplementary submissions, conducted five days of public hearings and has received substantial amounts of additional information, correspondence and answers to questions on notice.

1.3 This is an important inquiry. The size and growth of Australia's financial sector and the fact that millions of Australians are involved in it, not least because of compulsory superannuation, makes it essential that modern and adaptable regulations are in place and regulators such as ASIC are at the top of their game.

1.4 The inquiry's terms of reference are broad and the submissions received by the committee traversed a wide range of concerns about ASIC's performance. Many of the people who wrote to the committee recounted their experiences of receiving bad financial advice, of unknowingly being placed in high-risk investments, of having documents forged and signatures used improperly. They referred to serious financial losses and difficulties in having their complaints addressed. In their view, the regulatory framework and the regulator had failed to protect their interests.

1.5 The committee could not investigate every allegation of misconduct before it. It decided, therefore, that it would conduct two case studies to enable the committee to examine ASIC's performance in greater depth. It would then use these initial findings to determine or to test whether there were common complaints or patterns in ASIC's behaviour evident in the remaining evidence. This evidence covered a range of issues including corporate collapses and non-compliance, liquidations, and whistleblowers. As its first case study, the committee looked at lending practices between 2002 and 2010 drawing its findings largely from over 160 submitters whose stories of irresponsible even predatory lending practices were remarkably similar.

1.6 The second case study involved the conduct of financial planners in Commonwealth Financial Planning Limited (CFP), part of the Commonwealth Bank of Australia Group (CBA), and ASIC's response to allegations of wrongdoing. A number of former CFP clients provided evidence that indicated that they had suffered significant losses because of the conduct of some unscrupulous advisers. They spoke of being bullied by CFP/the CBA, and described the stress and uncertainty that they and their families suffered as a result of misconduct at CFP. The inquiry raised questions about CFP's sales-based culture, which was described as 'toxic' at a public hearing. Allegations of forgery and a cover-up within CFP have also been aired.

1.7 One of the committee's key concerns in the CFP matter related to the adequacy and integrity of the ASIC-approved compensation arrangements that CFP/the CBA put in place for affected CFP clients.

1.8 The committee was well advanced in preparing its report, when on 16 May 2014, ASIC and the CBA advised the committee that there were inconsistences in the way in which the compensation arrangements for CFP clients had been applied. This revelation suggested that, for some time, the CBA had not kept either the committee or ASIC fully informed about the compensation process for clients affected by serious misconduct within CBA's businesses (see attachments).

1.9 The latest information that ASIC and the CBA provided to the committee in order to correct the record was sketchy and left many key questions unanswered. They included the number of affected clients who did not receive correspondence from CFP and those who missed out on the offer of $5,000 to help them pay for an expert assessor to assist their claim.

1.10 Concerned that it may still not have a correct understanding of what has happened, the committee has sought additional information and clarification from both ASIC and the bank on this matter of central importance to the committee's inquiry and report.

1.11 In light of these surprise developments, the committee is of the view that it requires more time to assess the significance the new evidence coming to light and the responses it expects to receive from ASIC and the CBA. The committee agreed to table this interim report and to request an extension to present a final report no later than 26 June 2014.